#2121 - Doctrine Of Frustration - Contract Law

Doctrine of Frustration

Has the change of circumstances make performance radically different from that which was originally undertaken?

• Davis Contractors v Fareham UDC [1956]:

  • Lord Radcliffe:

    • Courts first examine contracts and the circumstances in which they were made

      • In order to see whether or not from the nature of the parties must have made their bargain on the footing that a particular thing or state of things would continue to exist.

        • If they must have done so, a term will thereby be implied that this is the case.

    • Court will then ask whether or not literal enforcement of obligations in new circumstances

      • Will lead to radically different performance than that originally promised

        • owing to this non-existence of the thing contemplated at formation that it would continue to exist.

What makes performance radically different?

1. Legal impossibility

• Metropolitan Water Board v Dick Kerr [1918]: M contracted with D to build dam. Subsequently while work taking place, D banned from continuing work by Ministry of War.

  • Lord Atkinson:

    • Parties can be excused when conditions anticipated at contract formation have completely changed since then,

      • making performance entirely different (i.e. b/c illegal).

      • Or if contract continued, they would be bound for indeterminate length of time.

2. Physical impossibility

• Death and Serious Incapacity in personal service contracts

• Destruction of Subject Matter

  • Taylor v Caldwell [1863]: Music hall hired for concerts by D, subsequently destroyed accidently be fire before concerts performed.

    • Blackburn J:

      • Where parties knew something had to exist in order for the contract to be performed at contract formation

        • But subsequently that thing disappeared without their fault

          • Parties have implied condition that they intend to be excused if performance thereby becomes impossible.

• Failure of Supplies

  • S.7 Sale of Goods Act:

    • Where agreement to sell specific goods

      • Without any fault of seller or buyer

        • Goods perish before risk transferred to buyer

        • Contract is avoided

  • But where goods are unascertained, then risk will normally be on the seller to find alternative supplier, meaning contracts here rarely frustrated.

• Delay and Hardship of finding substitute

  • Must be caused by new and unforeseen event, however, not just within commercial risks undertaken

    • Davis Contractors v Fareham [1965]:

      • Lord Radcliffe:

        • Lack of Provision for shortages/delays within contract which are foreseeable in the trade do not make contract radically different.

          • Can’t just use frustration to get out of bad bargain.

  • Performance in new circumstances must radically alter the rights and obligations originally undertaken (question of degree)

    • Jackson v Marine Insurance Co Ltd [1879]: Ship meant to end up in San Francisco w/ cargo, ran aground and was delayed for several months. Z pulled out of charterparty, C could only claim insurance from D if contract frustrated, not for breach.

      • Bramwell B:

        • Although trip agreed could be made eventually, time gap between two trips indicated that latter trip was a new adventure

          • a voyage which Z and C had no intention of making when the contract was made

            • Thus, contract frustrated by delay leading to new obligations.

    • The Eugenia: D, if hadn’t broken war clause by entering Suez Canal, would have had to take ship round Cape of Good Hope rather than through canal, leading to 30 day longer journey.

      • Lord Denning MR:

        • Goods carried not needed at market place at exact time – could be delayed w/ little effect to price

        • Delay of 30 days capable of being performed by ship, and not unreasonable delay.

          • Therefore, performance different and longer, but not radically different from that originally agreed.

3. Purposeless

• Contract, while not impossible to perform or leading to unreasonable hardship

  • can still be frustrated when the intervening event has so undermined the purpose of the contract

    • that it should be discharged

• Krell v Henry [1903]: Rooms advertised as having view of coronation procession hired out to D, but procession cancelled before contract performance.

  • Vaughan Williams LJ:

    • First must ask: What is the substance of the contract?

      • If substantial contract needs for its foundation the assumption of the existence of a particular state of things.

        • Then contract is limited to performance if that state of things exists.

• BUT Herne Bay Steam Boat Company v Hutton: C hired to D a ship to take D’s customers to tour naval parade for coronation, but coronation and naval parade cancelled (fleets remained in place). D refused to pay.

  • Vaughan Williams LJ:

    • D had two objects to the contract:

      • Taking people to see the naval review

      • Taking people around the fleet

        • But just because these purposes became impossible does not mean that these were the foundation of the contract formation so as to frustrate the contract.

• Four different explanations for these Contrary decisions:

  • Chen Wishart: purpose of contract must be common to both parties –

    • in Krell rooms specifically hired out b/c location overlooked procession + hired for that reason

      • in Hutton hiring out of boat irrelevant to what purposes (touring w/ customers) D had in hiring it.

    • Vaughan Williams LJ in Krell:

      • Flat was linked to the purpose of the contract – the position of the flat and the procession under it is the foundation of the contract

        • Goold: price hike is significant here – ought to be looking at what each party has said (assumption of responsibility) – not just the broad purpose.

  • Stirling LJ in Hutton:

    • Not all purposes of contract frustrated – D can still take customers to tour fleet – it hasn’t gone anywhere.

  • Brownsword: Krell had a consumer disappointed, Hutton a businessman. Courts more likely to favour the consumer over the businessman.

Exceptions to Frustration Applying

• Construction: Where risk of the change of circumstances was expressly or impliedly allocated to one of the parties

  • If so

    • Then that party is liable under a valid contract

  • Express Terms

    • However, these “force majeure” clauses must be phrased so that the court can read them as applying to that intervening event – i.e. must have been anticipated by the parties.

      • Metropolitan Water Board v Dick Kerr [1918]: Clause in contract said that if difficulties encountered, new date for completion to be fixed.

        • Lord Atikinson:

          • Certainly, making performance illegal is a “difficulty”

          • BUT This sort of “difficulty” cannot have been in the contemplation of the parties at contract formation

            • since work not made illegal til after formation.

          • Thus, can’t be held to apply to this situation

  • Implied Terms

    • When court is implying a force majeure clause, they may take the view that the lack of provision for the event in the contract means the performer is taking that risk. This will only happen when:

      • This is common practise

      • OR the parties foresaw the frustrating event as very likely yet made no provision for it

        • BUT The Eugenia [1964]:

          • Lord Denning MR:

            • Foresight only relevant to frustration if parties did not foresee event

              • b/c that means they can’t have left any provision to deal with unforeseen event.

            • BUT only thing essential is that parties have made no provision for event it in the contract

              • Even if foreseen, parties can still use doctrine of frustration if performance then made radically different.

• Fault (self induced frustration): Where C is at Fault in causing the frustrating event

  • If so, then C is liable under a valid contract and is barred from claiming frustration (the non-self induced frustrater can still claim frustration, however)

  • This can be through:

    • Where the frustrating event occurs due to C’s breach of contract

    • An anticipatory breach of contract

      • through C negligently or deliberately allowing the frustrating event to occur despite the ability to prevent it (a question of degree and control)

    • Through the power to elect

      • Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]: D chartered trawler (SC) from C which had otter trawl for catching fish. D needed licence for each of 5 vessels w/ trawl, received only 3. D chose vessels (not SC) and claimed frustration for contract w/ SC.

        • Lord Wright:

          • Act of D’s own election which prevented SC for being licensed for fishing. Clear that D allowed to elect any of its vessels and it deliberately did not elect SC

            • Immaterial the reasons behind this decision

              • All that is material is that by their own actions they could have avoided frustrating the contract and did not.

                • Therefore, are in breach.

      • The Super Servant Two [1990]: D contracted w/ C to use ship SS1 or SS2 to move oil rig. Owing to event w/o D’s fault, SS2 sank and SS1 already engaged on contract. C sued D, D claimed frustration.

        • Bingham LJ:

          • If D is entitled to elect which ship to use cos has option, frustration can’t be used as a defence

        • Dillon LJ:

          • Essence of frustration is that it brings contract to end automatically

            • If you have an option to continue the contract through some action and don’t, then contract only self frustrated and you are in breach.

      • Chen Wishart: Problems:

        • Not C’s fault that he is only able to fulfil some of his contracts

        • Real problem is C’s favouritism for better clients which could be controlled by different ways

          • E.g. making C give proportional delivery to all those contracted with as far as supplies will go

        • Undermines “force majeure” clause approach which excuses sellers if they give partial performance to those they have...